ABCDiamond

The American figures that are often quoted exclude that so I did the same.

I could have quoted every possible option, but chose to just quote three.

However, the figures including mortgages are:
Once the FX rate goes back to normal, those figures are actually all very similar.
Not exactly being "Aussies are the most indebted in the world" as some people say.


And that may be one reason why mortgage debt in total is higher. People are using it as a future long term investment, not to be confused with the other form of debt that has no assets attached to it.

The REALLY interesting figure for each country would be the NET Personal debt, ie AFTER assets are also included.

eg: take 2 examples:

Person 1: $200k mortgage, $2k credit card debit and $600k in investments and property.
Person 2: $20k credit card debt, no investments, property or mortgage.

Personal, Household or Consumer Debt including mortgages.
Person 1: $202k debt
Person 2: $20k debt
Using this measure, Person 1 is much worse off than Person 2

Personal, Household or Consumer Debt excluding mortgages.
Person 1: $2k debt
Person 2: $20k debt
Using this measure, Person 1 is much BETTER off than Person 2

My preferred system, Net Personal, Household or Consumer Debt including mortgages AND assets

Person 1: No real debt, just $398k in Net Credit
Person 2: $20k debt
Using this measure, Person 1 is much, much BETTER off than Person 2.

Which option is the most realistic to you ?

littda01

I think the issue with net debt is that the asset (property) and the debts (mortgages) are related, so with a fall in property values, the asset value contracts whilst the debt remains the same.

So I would say in this case, the most realistic measure is total debt (incl mortgage) against GDP, where Australia has one of the highest ratios in the world.

But obviously depends on the point you're trying to make. I was just curious why you had not included it, and I think when others talked about 'indebtedness', they were including mortgage debt.

ABCDiamond

This keeps being said, but no one is quoting the actual numbers. These numbers are not readily available, as far as I can tell, but I assume you must have the source for them ?

The figures were in response to pomtastic and trying to find out which figures he was referring to when he said "Aussies are the most indebted (as a % of GDP)". There was no specific mention of mortgages, and in fact, when "indebted as a % of GDP" is discussed it is normally either Public debt or External debt that is being discussed.

I have seen this debt as a % of GDP, quoted in the past by some people:

• 109% Australia
• 68.5% UK

But they get the two types confused...
109% Australia being External debt.
68.5% UK being Public debt.

It looks good until you get the other "balancing" error...
18.6% Australia Public debt
427.0% UK External debt.


If the asset (property) and the debts (mortgages) are related, the ratio would have to be similar in each country to get an accurate reading from those figures. If one country had a higher investment ration than the other, then it skews the figures.

Regarding the fall in property values, that only applies if property values fall a hell of a lot.

Current average property value is ? $500k or $600k depending who you speak to.
Whilst the current average mortgage is $285,300. A lot less than values.

littda01

ABCD, you're right that people often confuse these numbers. So I don't make the same mistake myself, I'll just refer you to this blog where a real expert references a lot of this stuff -

http://www.unconventionaleconomist.com/

I've read a few of these lately, and I can't remember which mention which particular set of figures.

But in terms of GDP ratio, I believe Australia's total housing market value is currently 3.1 times its GDP, which is considered unusually high.

Obviously thats different to total mortgage lending, but I think you'll find plenty of other relevant stats and sources in this blog and others like it.

Evelin

thank you for the link. Interesting reading.

littda01

No problem, this part in particular I did not know -

"'Moreover, this underscores an obvious point: while we can debate the macro risks surrounding housing, it is likely to be a very poor investment given current valuations. House prices can - indeed, often do - show no growth in real terms for a very long period. To take an extreme example, real house prices in Melbourne did not surpass their 1891 peak until 2001. Buying a bubble is an extremely bad investment. I expect that the real returns on residential investment will be negative over the next decade.''

This is from the Goldman Sachs guys report on Aussie housing.

ABCDiamond

That is something I have said quite a few times in the past. I think I worked out that Sydney for example, between 2002 and 2008, increased by an averaged of less than 1% per year, after all ups and downs were levelled out.

Melbourne had an average of about 5.5% per year.

And that was before inflation was counted for.

I'll have to update those figures to 2010 now.

pomtastic

Nice! Another one to add to my 'Influential people who say Aus house prices are stuffed' list, it's growing bigger by the day.

ABCDiamond

I am surprised that Gerard Minack isn't already on your list.

He has been predicting this bubble bursting for some years now.
In fact, in 2008 he forecast a 30% drop by 2010.

What's that ? he's off your list now ?

pomtastic

Gerard's on my list. Timing is very tricky, anyone who says they bought for example shares at the bottom and sold at the top are bloody liars, same in real estate. Real Estate in Aus has been in an upward trajectory for 30 years so if you are out by a few years it ain't a disaster, picking tops or bottoms over such a large period is not an exact science and no one on earth gets the exact levels - no one.

off of the top of my head .... plenty of others if I can be bothered to search, along with plenty of fund managers wanting to short the Aussie banks due to our unsustainable housing market.

Gerard Minack
Joseph Stiligz
Jeremy Grantham
Joe Flood
Steve Keen
and now Goldman Sachs

The funny this is, CBA have been caught out fudging stats to cover up the Aussie housing bubble, wonder why they feel the need to do this? Do you work for the CBA ABCD???

http://www.smh.com.au/business/cba-t...914-15b0o.html

littda01

Noone can predict the timing of these things... they're often dependent on intangibles such as market sentiment, as opposed to specific events/thresholds.

For example, the guys such as Roubini and Keen who predicted the GFC were both out in their timings, but they did get the directional analysis spot on.

Same applies to the Aus housing market. By any measure, its a huge bubble. The only question is when and how it deflates, which it must.

asprilla

No it isn't a huge bubble ....and when have you ever heard of a bubble "deflating"???! Bubbles burst, they don't deflate.

If it was a huge bubble then it would burst and we would see prices suddenly plummet, 30%, 40%, 50%, maybe more.

If you want to understand the concept of "bubble" then look it up on the internet. Have a look at technology stocks around the year 2000.

There are far too many people misusing the term "bubble" nowadays. If property prices drop, and I reckon they will, they'll go down 10% or maybe 20% over a few years. That's not a bubble bursting !!!! Thats just prices going down.

The internet is full of people talking about these bubbles, and their legions of followers who are desperate to affirm their own biases. Exaggeration and buzz words - that's the name of the game.

Amazulu

Hubbly bubbly.

Amazulu

Roubini is okay. Keen is a just a tool.

littda01

Well I think there are a lot of economists who would disagree with what you say there, Bubbles can end very quickly, or deflate over time. For a recent example of a relatively slow deflation, look at the US property market which peaked in 2006, and didnt touch bottom until mid/late 2009. So the "bubble" formed over 4-5 yrs and took 2-3 to fully deflate (if indeed it has finished)Another example would be the "great crash" of 1929 which actually took place from 1929-31. Japan's "lost decade" contains the information in the name.

But I agree that these things get sensationalised.

In terms of what a bubble is, its quite clear in economics. Its a large deviation from mean in a given asset valuation indicator. In the case of the Aussie property market, there are a few of these.

- Real median prices.
- Rental yields.
- Spread between mortgage cost and rental cost.
- Average wage : average house price ratio
- Aggregate value of property market as a ratio to GDP

And some others, but these are a good start :-)